A few years ago, I was contacted by a company seeking an M&A advisor to help them expand through acquisition. The company already had 12 locations on the east coast and the owner shared that he had a goal of $500 million in revenue. At first glance, I was excited to represent them on the buy-side. However, after finding what I deemed a very attractive acquisition target, it soon became clear that my client and I had different visions of an optimum acquisition deal. I recommended they invest in a well-run, profitable business with growth potential. They wanted to buy a cheap business. 

It turns out that their growth strategy thus far had been to buy locations based primarily on low up-front costs. So I was not surprised to learn that 10 of their 12 locations were underperforming or even losing money. Only two of their locations were profitable, doing $10-$15M in revenue, and those two locations were carrying the company.

Their growth strategy was centered around opportunity, buying whatever was most available and easiest to buy, i.e distressed businesses, also known as fire sales.

I get it, everyone loves a deal and feeling like they got something below value on cyber Monday. But when it comes to buying a business, buyers need to reconsider how they define a “good deal.” Some buyers mistakenly equate “a good deal” with “cheapest,” so they seek either an undervalued business or a distressed business they think that they can turn around. But let me tell you from experience: the real bargains in M&A are not fire sales. A good deal is a well-run, fairly-priced company with a solid foundation and untapped growth potential.

 Here’s What Makes Well-Run Businesses Attractive:
●      Consistent or Recurring Revenue: Businesses with subscription models, long-term contracts or financials that support long term success providing predictable cash flow.
●      Operational Efficiency: Streamlined processes mean fewer headaches for buyers and faster ROI.
●      Customer Loyalty: A strong, satisfied customer base is an asset that can’t be overstated.
●      Cultural Stability: Companies with engaged employees and solid leadership transition and  integrate more seamlessly.

Distressed Businesses, On The Other Hand, Often Come With Risks:
●      Customer Base Issues: Over-reliance on a few key customers increases risk if they leave while declining customer loyalty or negative customer feedback could signal trouble.
●      Cash Flow Problems: Negative or inconsistent cash flow can signal operational inefficiencies or weak demands.
●      High Competition: Intense market competition may make it hard to maintain profitability.
●      Employees and Culture - Over-reliance on key individuals can pose a continuity risk. Low Employee Morale or High Turnover can disrupt operations and require significant effort to fix.

Fixing these issues can quickly erase any perceived savings. I’ve seen buyers pursue distressed businesses, thinking they could quickly flip them into profitability. More often than not, they end up overwhelmed by operational challenges, cultural issues, and unanticipated CAPEX costs which always cost them more money and - just as important – time.

When I represent the buy-side, I often work with successful business owners who want to expand their business through acquisition. They are used to negotiating great deals within their businesses when it comes to contracts for services or purchases or equipment, inventory, and supplies. But sometimes I have to coach them to think differently when it comes to acquiring a business. Whether I’m working with a strategic buyer or a first-time investor, one piece of advice stands out: prioritize well-run businesses.

A good acquisition deal is not about paying less upfront. It’s about paying a fair price for a business that will generate sustainable returns. Well-run businesses may not come with the lowest price tag, but they offer something far more valuable—stability, scalability, and strategic advantages. 

Economic and political factors like interest rates, inflation, regulations, and market uncertainty will always influence the M&A landscape. Yet, businesses with $1M+ EBITDA continue to command attention from serious buyers, even in challenging times. Why? Because these companies are well-run businesses with a positive outlook.  

In closing, it’s better to Build, not Bargain.